David Paganie • Houston
Arecent surge of private equity-backed interest in Gulf of Mexico deepwater acreage is injecting renewed optimism in the regional outlook. Many of the majors and large independents have shifted considerable capital expenditure to onshore tight oil to shore up balance sheets and for the promise of production growth and short-cycle returns. While discouraging to an already distressed offshore supply chain, this trend is enabling smaller, nimbler producers to build E&P portfolios with lucrative GoM acreage, which is already translating into new opportunities for the service sector. Recent analysis by Wood Mackenzie suggests that forecast development capital spend from private equity-backed operators in the GoM is set to rise from $1 billion in 2018 to $1.2 billion in 2020. Meanwhile, independents’ development capex is projected to decline over the same period, from $1.4 billion in 2018 to $1.0 billion in 2020.
LLOG Exploration represents the largest proportion of projected private equity-backed activity, according to Wood Mackenzie’s analysis. LLOG’s standardized approach to development, while employing comparatively smaller project teams, allows it to maintain a lower cost structure and generate faster cycle times. This successful approach for the operator has drawn considerable interest from other regional producers.
“The average time from discovery to first oil for private equity-backed companies has been around three years for fields sanctioned since 2010, compared to around six years for most majors and independents,” said Michael Murphy, research analyst with Wood Mackenzie’s GoM team. “Moreover, many smaller players in the GoM have been able to add production at a lower cost than their larger counterparts. In fact, the average full-cycle capex in deepwater GoM now stands at around $12/boe for private equity-backed companies, about 40% lower than independents.”
LLOG is now venturing into new territory with its Buckskin project, which is slated for first production in 2019. The field is in the Upper Wilcox which is characterized by ultra-deepwater and high pressure. Its Shenandoah development is in high pressure as well. The project likely will include a new floating production unit. It is understood that these projects may require a combination of proven and new technology.
Bruce Beaubouef, Offshore managing editor, reviews LLOG’s deepwater strategy and its E&P portfolio, beginning on page 18. Bruce’s feature report leads this month’s special coverage of global deepwater development.
Meanwhile, publicly traded independent Kosmos Energy has entered into an agreement to acquire Deep Gulf Energy from First Reserve and other shareholders for $1.225 billion, subject to certain adjustments. The deal closed last month. Kosmos, which previously focused on plays offshore West Africa, views the new competitive landscape in the GoM deepwater as an ideal opportunity to gain a foothold.
“With many competitors leaving the Gulf of Mexico to chase onshore shale plays, a huge opportunity has opened in the basin,” said Andrew Inglis, chairman and CEO of Kosmos. “The best deepwater assets can compete with the best of shale, and now is a good time to enter the Gulf of Mexico.”
Despite the improving economics of offshore development, there are still many projects in the pipeline awaiting approval. Engineering firms are bringing new designs and concepts to the marketplace to enable these initiatives. Bruce Beaubouef met with Christian Brown, President-Oil & Gas, SNC-Lavalin, and Martin Grant, Executive Vice President Engineering, SNC-Lavalin, to discuss the latest technology and design advances, and their views on the outlook of offshore oil and gas. The interview begins on page 28.
